FOMC Minutes, Dollar, Stocks, Data Taking Center Stage For Gold

By Allen Sykora of Kitco News
Friday February 17, 2017 12:27

(Kitco News) - The gold market is apt to remain fixated on the future of U.S. monetary policy, taking its cues next week from minutes of the most recent Federal Open Market Committee meeting, analysts said.

Traders will also watch to see whether the U.S. stock-market rally stalls, the direction of the U.S. dollar and political developments in the U.S. and Europe.

Gold prices rose this week, with the April Comex contract up 0.3% since last Friday to $1,240.10 as of 12:21 p.m. EST.

U.S. markets are closed Monday for holiday. On Wednesday, two of the bigger news events of the week will occur – the release of existing-home sales and minutes from the last meeting of the U.S. Federal Open Market Committee.

“We’re certainly going to be looking at the FOMC minutes,” said Bart Melek, head of commodity strategy with TD Securities. “The market will be looking to see if the committee was hawkish, relatively, or dovish. Any tones of dovishness, relative to current expectations, would help gold. Anything on the hawkish side, conversely, would probably force it a little bit lower.”

Heightened expectations for higher U.S. interest rates tend to hurt gold by supporting the U.S. dollar, raising Treasury yields and upping the so-called “opportunity cost” of gold, which is the lost interest income from holding a non-yielding asset such as a precious metal. In congressional testimony this week, Fed Chair Janet  Yellen indicated rate hikes are likely coming; however, market watchers are on the continual lookout for clues on when and how many.

To that end, traders also monitor U.S. economic data, such as the existing-home sales report on Wednesday. This is one of the few major reports during a light week for economic news, with other reports including jobless claims Thursday and sales of new homes next Friday.

“Existing-home sales will give us the impact of what has happened to the U.S. economy in response to the lifting of interest rates recently and the yield curve moving higher,” Melek said.

Traders will also be watching outside markets, such as stocks and the U.S. dollar. A pullback would likely be constructive for gold, said Afshin Nabavi, head of trading with MKS (Switzerland) S.A.

Besides these markets, George Gero, managing director with RBC Wealth Management, figures gold traders will be closely monitoring European political developments, a Comex options expiration and more Fed news.

Traders have been eyeing any news relating to upcoming elections in nations such as Germany, France and the Netherlands, he said. Markets are watching to see if there could be a further dismantling of economic union in Europe, such as the U.K.’s Brexit vote last summer that boosted gold. Meanwhile, volatility could pick up due to jockeying around options expiration, Gero added.

Gero also commented that traders will be watching for any news out of Fed officials, but added that so far, gold has been able to maintain upward momentum in the face of expectations for eventual monetary tightening. A number of Fed officials are scheduled to speak next week, including Philadelphia Fed President Patrick Harker and San Francisco Fed President John Williams on Tuesday, Fed governor Jerome Powell on Wednesday and Atlanta Fed President Dennis Lockhart on Thursday.

Technically, Melek said, key resistance levels for spot gold include a 38.2% Fibonacci retracement level around $1,250, plus the 200-day moving average around $1,262.

“If we get some sort of dovish tone, mainly because of statements from the Fed or data comes in really weak, that’s where gold would want to trend,” Melek said.

Added Nabavi: “A break above $1,250 should open the way toward $1,300.”

Meanwhile, a key support level will be the 100-day moving average around $1,213, Melek said.